Institutional Investors Bearish On EM Equities Next Year, More Negative On India Than ASEAN, Survey Finds

By Shuli Ren

Bank of America Merrill Lynch conducted an investor sentiment survey at its China conference in Beijing and Macro Days in Hong Kong and Singapore last week. 272 investors participated in the survey, with a “good mix of long-only and hedge funds.”

Overwhelmingly, two thirds of the survey participants chose equity as their favorite asset class for 2014. Alternative assets ranked a distant second with 12% saying it is their favorite. Looking back, one-third said equity markets rallied harder than they thought this year.

Emerging markets equities are falling out of favor. Over half (58%) thought emerging markets equities would under-perform the developed world in 2014. 63% said emerging markets are most likely to generate a meager 0-5% return next year. Only 23% said they expected a 5-15% return.

This bearish tone follows emerging markets’ dismal performance this year. Developed world clearly outperformed. Year-to-date, the iShares MSCI ACWI Index (ACWI), where 90% of the weights are in the developed world, gained 18% whereas the iShares MSCI Emerging Markets Index (EEM) lost 3.9%.

But long-term outlook is brighter. Only 48% thought EM equities would likely generate 0-5% over the next five years, and 44% said an annualized 5-15% is to be expected.

China remains the investors’ favorite destination in Asia (39%), followed by Japan (26%).

India is overwhelmingly the least favorite equity market in Asia (42%), followed by ASEAN (21%), even though both suffered losses. The WisdomTree Trust India Earnings Fund (EPI) lost 13.7% this year, largely due to the 12% loss in rupee. The iShares MSCI Indonesia ETF (EIDO) lost 19.3%, from 16% loss in rupiah.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.